The Good-Better-Best Approach to Pricing

View more from the

Executive Summary

Companies often crimp profits by using discounts to attract price-sensitive customers and by failing to give high-end customers reasons to spend more. A multitiered offering can use a stripped-down product (the “Good” option) to attract new customers, the existing product (“Better”) to keep current customers happy, and a feature-laden premium version (“Best”) to increase spending by customers who want more.

There’s nothing new about this concept, of course—think of the different grades of fuel at any gas station and the varying packages marketed by cable TV providers, to name just two examples—yet many companies and industries have failed to embrace it. The author, a consultant who has helped many organizations adopt G-B-B pricing, presents a step-by-step guide to devising, testing, and launching the strategy. Key steps include identifying “fence” attributes that will prevent current customers from trading down from the existing offering; carefully choosing features and names to create clear differentiation and value; and setting prices using feedback from in-house experts and, when possible, drawing on conjoint analysis and other market research.

Idea in Brief

The Problem

Companies often crimp profits by using discounts to attract price-sensitive consumers and by failing to give high-end customers reasons to spend more.

The Solution

A multitiered offering (typically with three options) can use a stripped-down product to attract new customers, the existing product to keep current customers happy, and a feature-laden premium version to increase spending by customers who want more.

The Implementation

Key steps include identifying “fence” attributes that will prevent current customers from trading down from the existing offering; carefully choosing features and names to create clear differentiation and value; and setting prices using feedback from in-house experts and, when possible, drawing on market research.

For decades the auto insurance industry operated on a simple assumption: Consumers are highly price-sensitive, and most will buy the least-expensive plan they can find. But in the early 2000s Allstate conducted some research that caused it to revisit that assumption. Price does matter, it learned, but there’s more to the story: Many drivers worry about being hit with premium hikes if they’re in an accident. And drivers with clean records want to be rewarded.

Armed with those insights, in 2005 Allstate launched Your Choice Auto. The program relied heavily on modifications to a feature in the company’s standard policy (which it continued selling) called accident forgiveness, in which drivers who went five years without accident claims would have no premium increase after their first accident. It introduced a Value plan, priced 5% below Standard, that didn’t include accident forgiveness. A new Gold plan, priced 5% to 7% above Standard, offered immediate forgiveness (no five-year wait) along with a deductible rewards feature in which repair costs borne by the driver would decline by $100 for every year of accident-free driving. And at the highest end, a new Platinum plan (15% above Standard) also included forgiveness for multiple crashes and a safe-driving bonus under which credits were issued for each accident-free six months.

Consumers were enthusiastic: By 2008 Allstate had sold 3.9 million Your Choice policies and was selling 100,000 new ones each month. A decade later the pricing plan remains attractive: In 2017, 10% of customers chose the Value plan, and 23% chose Gold or Platinum. The company has no doubt that Your Choice drove significant incremental growth. “There were a lot of skeptical people in the company,” recalls Floyd Yager, one of Allstate’s senior vice presidents. “But we demonstrated that car insurance doesn’t have to be about being the lowest-price game.”

Your Choice is a classic example of Good-Better-Best (G-B-B) pricing. There’s nothing new about the concept of adding or subtracting product features to create variably priced bundles targeted to customers of varying economic means or those who value features differently. It’s been nearly 100 years since Alfred Sloan introduced a “price ladder” to differentiate Chevrolets and Buicks from Oldsmobiles and Cadillacs, creating “a car for every purse and purpose” and powering General Motors to overtake Ford. In the modern era, G-B-B pricing is evident in many product categories. Gas stations sell regular, plus, and super fuel. American Express offers a range of credit cards, including green, gold, platinum, and black, with varying benefits and annual fees. Cable TV providers market basic, extended, and premium packages. Car washes typically offer several options, separated by services such as waxing and undercoating.

Yet many companies and industries haven’t adopted tiered pricing—and there’s little rhyme or reason to which have, which haven’t, and why. G-B-B is a strategy every company should consider. In my consulting work, I routinely see it used to simultaneously attract new high-spending customers and price-conscious ones, dramatically boosting revenue and profits. (Disclosure: Among my clients is Harvard Business Publishing, the publisher of this magazine.)

Although G-B-B is conceptually simple, implementation can be tricky. If new offerings aren’t constructed and priced correctly, existing customers will trade down, hurting profits. In this article I outline why G-B-B can benefit many firms. Then I present a step-by-step guide to devising, testing, and launching the strategy in a way that boosts profits and reduces the threat of cannibalization.

Capitalizing on G-B-B

G-B-B’s benefits come from three approaches: offensive plays aimed at generating new growth and revenue, defensive plays meant to counter or forestall moves by competitors, and behavioral plays that draw on principles of consumer psychology, whatever the competitive landscape.

Going on the offensive.

Offensive plays can help brands grow revenue in at least four ways. First, companies can dramatically lift margins by creating a high-end Best version that persuades existing customers to spend more or attracts a new cohort of high spenders. In my work with companies, managers consistently underestimate customers’ willingness to spend and the number of customers who might upgrade to Best, even at prices that were previously unthinkable. Across a range of industries, it’s not unusual to observe up to 40% of sales landing on the Best option.

For example, visitors at Six Flags amusement parks can buy one of three Flash Passes (Regular, Gold, and Platinum add-on options to the standard admission ticket, with prices varying by day and location) to bypass lines and thus enjoy more rides. The Gold Pass, which costs as much as $80 a day on popular weekends, reduces waits by up to 50%; the Platinum Pass, which can reach $135, reduces them by up to 90%. “It’s amazing, actually, how many people pay for this,” then-CFO John Duffey told analysts shortly after the new passes were rolled out, in 2011. Many Flash Pass purchasers are existing customers who decide to upgrade, but some are new customers who had previously been put off by the notoriously long lines for rides.

Second, and at the other end of the spectrum, a low-priced Good offering can make a product accessible to price-sensitive or dormant customers for whom the existing product line (which typically then becomes a Better offering) is out of reach. And it can limit the need for discounts or sales on the existing product or service—a crucial advantage, because frequent sales can erode long-term pricing power.

A low-priced Good offering can make a product accessible to more customers.

Uber has shown continued creativity and success with its Good versions. The company began in 2010 as a black-car luxury service, and it still offers several high-end options. But in 2014, hoping to lure price-sensitive riders, it launched uberPOOL, in which riders share a car with strangers going in the same general direction. Unlike the traditional uberX service (in which riders have a midsize sedan to themselves and go directly to their destination), uberPOOL trips involve multiple pickups and drop-offs of other passengers, so there’s additional travel time; in exchange, the service is priced as much as 50% below uberX. UberPOOL now accounts for 20% of all Uber rides—and in some cities it accounts for more than half of all trips. The company has begun experimenting with Express POOL, which costs 30% to 50% less than uberPOOL and requires riders to walk a few blocks to a central pickup location. Uber’s story shows that even after implementing a G-B-B strategy, companies should continue exploring innovations that might lead to new, lower-priced versions of Good.

A third way that G-B-B can increase revenue is through a new Best offering that boosts the entire brand. In 2015 Patrón Spirits debuted a line of Roca Patrón tequilas made by the tahona process, which uses a two-ton wheel hand-cut from volcanic stone to extract juice from cooked agave. The result is a sweeter, earthier, more complex spirit than tequila produced by automated means. Even at $69-plus a bottle, Roca Patrón has exceeded sales expectations: It is projected to sell 60,000 cases in 2018, which would make it the world’s seventh-best-selling premium tequila brand.

And the benefits go beyond that revenue: Sales of lower-priced Patrón tequilas have risen sharply. Lee Applbaum, Patrón’s chief marketing officer, cites research showing that Roca has boosted perceptions of the overall Patrón line as artisan-crafted (from 60% of consumers surveyed to 64%), made by a small-batch producer (47% to 58%), and fitting an image people want to convey (59% to 65%). “The details of the expensive and laborious way that Roca Patrón tequilas are manufactured create a brand halo that reinforces important attributes…for the entire Patrón line,” he says.

Fourth, a lower-priced Good version can spark ancillary revenue from related or complementary goods and services. Consider Apple’s SE phone, which sells for just $349 (roughly a third as much as the iPhone X). Every SE sale stimulates additional revenue through purchases on iTunes and the App Store, payments for iCloud storage space, and sales of cases, chargers, and other accessories.

Playing defense.

Sometimes G-B-B isn’t about aggressively seeking new revenue—it’s about protecting a brand’s exposed flank. When faced with a low-cost rival, many companies’ knee-jerk response is to drop prices, but that’s often a mistake. When the price holds firm, 15% of sales, say, might be lost to a low-cost competitor, but 85% of customers are still paying full price—whereas if the price is cut, 100% of customers will be paying less. Another common response to cheaper rivals is to launch a “fighter brand”—a discounted product with entirely new branding. Classic examples include Procter & Gamble’s Luvs diapers and Intel’s Celeron computer chip. (See “Should You Launch a Fighter Brand?” HBR, October 2009.) That may work well, but the resources needed to create a new brand can be enormous.

In many cases, creating a new Good product is a better defensive strategy. Two of my B2B clients (in financial services and industrial parts) held significant market share and enjoyed healthy profit margins when new entrants began offering inferior products at rock-bottom prices. Customers seized on the disruptive entry as an invitation to negotiate, threatening to defect from my clients unless granted a discount. Although reluctant to lose any market share, both clients resisted the impulse to discount their core offering. Instead, they quickly rolled out cheaper Good versions that closely matched the new entrants’ stripped-down products. When offered those options, most customers backed off their demands for a discount and continued buying their existing offering at full price; they had been bluffing and weren’t actually willing to trade down to a lesser product. Implementing a Good version calls such bluffs—something a straight discount can’t do.

A caveat: This defensive maneuver can have mixed results. In 2015 Town Sports International, a chain of fitness centers whose memberships averaged $40 to $90 a month, began losing customers to competitors such as Planet Fitness, whose monthly fees are as low as $10. To fight back, TSI retained its existing membership plan and prices while launching a new plan—priced as low as $19.99 a month—that excluded or restricted some benefits, such as towel service and access to fitness classes. This staunched the membership decline: TSI gained 64,000 new customers in 2015. But the stock price plummeted, same-club revenues fell, and the CEO resigned. Still, the new Good membership may have been the best possible response in a tough environment. By steering clear of a simple discount or a price war, TSI ensured that many members continued to pay their existing monthly fees, and the company avoided a devaluation of its primary offering.

Drawing on consumer psychology.

For instance, companies often jam multiple features and attributes into a single product, but this can confuse and overwhelm customers. A G-B-B plan helps potential buyers focus on and understand features and think about which ones they value—and how much they’re willing to pay for them.
An educational software company I worked with found that customers didn’t really grasp its myriad product features. So it tested a G-B-B model that unbundled those features, creating a Good offering (its core software), a Better one (the core software plus new electronic exercises), and a Best one (the core software and exercises plus one-on-one tutoring). Customer research showed that the three-tiered model helped people differentiate the company from competitors—and indicated that half of potential customers would pay a premium for Better or Best. (Because of a sudden leadership change, however, the G-B-B model was never implemented.)

Helping Customers Understand Good-Better-Best

Once a company has created a multitiered offering, it needs to help customers understand the various options. This comparison grid, from a website design and hosting firm, is effective for three reasons, as described in the following annotations.

Limiting the use of features available with the Good option (pages, bandwidth, and storage) creates a “fence” separating the truly price-sensitive from those willing to pay more.

There’s a nice consistency and progression between packages: Customers don’t lose anything as they move up in price, and each level has three or four key differentiators.

The packages have been intelligently named. In particular, “Business” clearly communicates the type of customer who should choose the premium option. The 80% price difference between that package and “Advanced” signals the company’s belief that business customers—who typically have greater needs and are less price-sensitive—will be willing to pay significantly more.

G-B-B can also shift customers from a binary “buy/don’t buy” mentality to consideration of incremental value and spending. This can work in two ways. First, customers prefer having choices to feeling under an ultimatum, so three differently priced options can give them a sense of empowerment. Allstate CEO Thomas Wilson has identified this as a key benefit of the Your Choice policies, explaining that they moved people away from simply comparing Allstate’s prices with those of competitors. “If people [have] a choice in the conversation, they are not likely to switch [to a competitor] for $25 or $50,” he said in a July 2005 quarterly call.

Second, when faced with multiple options, customers tend to decide more quickly whether they are going to buy something, using their remaining time to focus on what. Having made that mental shift, they typically treat the Good version as a sunk cost, which makes them more amenable to upgrading. Salespeople exploit this tendency all the time: For example, instead of detailing all the features of a $1,200 appliance, they emphasize that “for only $200 more” than the entry-level $1,000 unit, a buyer gets lots of extra bells and whistles. Rental car companies highlight the full-size sedan you could be driving for $12 a day more than the price of a subcompact.

Companies can also use G-B-B to exploit the so-called Goldilocks effect: people’s propensity to choose the middle option in a set of three. In his book Priceless, William Poundstone recounts how Williams-Sonoma reaped unexpected benefits after launching a fancy bread machine priced at $429. That high-end model flopped—but sales of the $279 model (previously the highest-priced unit) nearly doubled.

A final argument for considering G-B-B relates to the realpolitik of instituting change. The simplicity of the G-B-B strategy makes it highly compelling to senior executives. For change to occur at any organization, top management must be committed, deploying political capital to sell others on the shift. Because managers have experienced G-B-B as consumers, they can quickly understand its appeal. In my consulting work, I often suggest other pricing strategies but wind up helping implement G-B-B because it’s the option managers find the easiest to understand, explain, and get behind.

Brainstorming About Tiers and Features

When considering a G-B-B pricing structure, the first step is to decide how many product versions to offer. As the name implies, the most common approach is three. In general, companies with a single existing product will designate it (or something close to it) as Better, adding features to create Best and subtracting them for Good. But if taking away features to create a Good offering isn’t feasible, companies can forgo that option and simply offer Better and Best.

Companies with complex products or a long buying cycle may be able to justify more versions. But too much choice is risky. In a well-documented study by Sheena Iyengar and Mark Lepper, researchers offered samples of jam to shoppers in an upscale grocery store. When presented with six flavors, 30% of tasters made a purchase. When 24 options were on the table, only 3% opted to buy. Researchers believe that when consumers have too many options, they become confused or paralyzed with indecision—a phenomenon the psychologist Barry Schwartz explored in The Paradox of Choice.

If a company is set on many offerings, it can be useful to group them in a way that turns consumers’ decision making into a two-step process. New York’s Metropolitan Museum of Art offers seven memberships. To minimize confusion, it divides them into two categories: Members Count plans ($80 to $600) for people joining primarily because they want to visit the museum, and Patron Circle memberships ($1,500 to $25,000) for those whose primary goal is philanthropic. Grouping memberships in such a way guides people toward a general category; once there, they can examine the G-B-B options in each.

After a company has gotten a sense of how many tiers to offer, managers can brainstorm about the features to include in each. Sometimes the decisions are obvious, but many of the best G-B-B plans draw on unexpected features, as Six Flags did when manipulating wait times to create a consumer benefit for its Flash Passes.

To help companies consider a wide array of potential features and benefits, I use a tool called the Value Barometer, which lists 13 common product attributes that can be added, dropped, or varied to create different perceptions of value.
Companies typically begin by identifying features of the current offering that vary or would be easy to vary, but the tool’s real power is its ability to help firms come up with out-of-the-box options that could be increased, decreased, or tweaked.

Pump Up the Value

A crucial step in devising Good-Better-Best bundles is choosing attributes to add, drop, or vary to create different perceptions of value. Adding and dropping are straightforward; the creativity is in varying attributes that span your G-B-B offerings. The chart below can help you find nonobvious ways to create Good and Best variations on an existing (Better) offering.

G-B-B Value Barometer

ATTRIBUTE

GOOD

BEST

Volume

Low

Unlimited

Service

Basic

High-end

Experience

Regular

Over-the-top

Time period

Off-peak

Peak

Waiting time

Standard

None

Speed

Slow

Fast

Brand

Generic

Differentiated

Warranty

Limited

Extended

Number of restrictions

High

None

Relationship

Distant

Close

Certainty

Low

Guaranteed

Flexibility

Low

High

Skill level

Basic

Experienced

Examples

Volume: Netflix prices its streaming service according to the number of devices on which content can be simultaneously viewed.

Number of restrictions: Many airlines offer “basic economy” tickets that are nonrefundable and allow no advance seat assignments.

Relationship: Memberships to the Boston Symphony Orchestra vary in such things as access to intimate gatherings with musicians, invitations to rehearsals, and behind-the-scenes lectures.

Certainty: Many heating oil companies offer homeowners the option of paying market rates (which fluctuate) or, for a premium, locking in a rate for the season.

Flexibility: TV networks typically sell up to 85% of their ad spots in advance, reserving the rest for advertisers, such as movie studios, willing to pay a premium for last-minute availability.

Skill level: Equinox Fitness rates and prices its personal trainers according to how far they have advanced in its training institute.

Once the brainstorming is complete, a company can begin analyzing the potential features it has identified. Three questions are key: Does the feature have mass appeal or low appeal? How would adding or subtracting it affect the cost of producing the good or offering the service? And is it a “fence” attribute—one that constitutes a barrier preventing existing customers from crossing over to something cheaper?

Many managers start by focusing on the Best option, because of its obvious potential for revenue growth (and because imagining new high-end features is fun). But they should begin by identifying and analyzing fence attributes—often the most challenging task in G-B-B implementation.

The goal of adding a Good offering is to pick up new budget-minded customers without losing revenue from existing ones. (In a perfect world, not a single customer would move from Better to Good.) Indeed, one of the biggest risks of shifting to G-B-B is that existing customers will migrate to the new lower-priced offering, cannibalizing revenue and margins. Fence attributes prevent this, by making the downgrade a difficult, unpleasant, or painful choice.

Examples of fence attributes abound. In cable television, ESPN, CNN, and HGTV are always included in “extended basic” (the Better offering) because many existing viewers highly value at least one of those channels, and losing access makes the idea of trading down to basic (the Good offering) anathema. Hotels offer discounted “no cancellation” reservations; the lack of flexibility creates a fence for many travelers. During a recent tour, the Rolling Stones sold seats for just $85, but those seats came with a catch: Concertgoers wouldn’t learn their location until arriving at the arena. That was a significant fence for many fans, who would rather stay home than sit in a poor location. And paperback versions of books previously published in hardcover utilize an obvious fence: They appeal only to readers who don’t mind waiting a year or more for the book. Companies seeking to implement Good offers must find similarly effective fences.

Defining and Pricing Bundles

To choose the fence attributes that will separate their Good and Better offerings, companies should look for features that have both wide and deep appeal (meaning that most customers want them and consider them vitally important) and are somewhat costly to produce. The combination of high appeal and high cost means that if the feature is part of the Better but not the Good offering, relatively few people accustomed to Better (that is, existing customers) will consider Good—but those willing to do without the feature can enjoy a significant discount. For instance, when the New York Times launched its digital subscriptions, in 2011, it moved to a G-B-B model in which the physical paper (which many subscribers were loath to discontinue, and which is costly to print and deliver) served as a fence attribute. That fence is effective enough to support a hefty price differential: An all-access digital subscription currently costs $324 a year, whereas adding print delivery brings the price to $481 and up, depending on location.

The same qualities—appeal and cost—that help companies choose fence features will also guide them toward features that belong in Best. Those should similarly appeal to a wide segment of buyers, but ideally they will cost relatively little to include so that the company can keep high margins on Best.

When Southwest Airlines created the Business Select package as its Best offering, about a decade ago, it identified high-appeal/low-cost items such as priority boarding, extra frequent-flier miles, and free cocktails as amenities worth including. Bundling those relatively inexpensive amenities in a premium package delivered $73 million in incremental revenue in the offering’s first full year.

High-appeal/low-cost Best features are often less about the actual product and more about the customer experience. For instance, quicker delivery time can be part of a Best offer. And in some industries, guarantees or warranties can deliver high perceived customer value at little cost, depending on the hurdles that must be overcome to redeem the guarantee or on the expected utilization rate. For example, the length of the warranty is the major differentiator between Good, Better, and Best versions of car batteries—products that behave fairly predictably. But some products, such as tutoring services and weight loss programs, require customer involvement to achieve success. Because of that uncertainty, companies generally aren’t willing to guarantee them, even as part of Best packages and even if consumers would highly value guarantees.

When devising Best bundles, companies need to be realistic about the attributes they can include. During brainstorming, it’s natural to dream big—but as dreaming turns to planning, vigilance is needed to weed out features that may be difficult to execute well or that could delay the launch. It’s also important to be judicious about the number of attributes. It’s tempting to throw all the latest and greatest features into Best, but this can result in unnecessary complexity and an unrealistically high price.

After completing the cost-benefit analysis of the various features, it’s time to design and assign tentative prices to the G-B-B bundles. Two rules of thumb for design: To ensure sharp distinctions between offerings, no more than four attributes should differ between Good and Better and between Better and Best. And it’s important to maintain a consistent progression of benefits from Good to Better to Best—beneficial features in Good should be retained in the higher-priced offerings so that every step up the ladder is a clear improvement.

Some rules of thumb can similarly help with pricing. Companies should pay close attention to the price gaps between Good and Better and between Better and Best. In my consulting, I strongly advise against setting a Good price that’s more than 25% below Better, and I recommend that the Best price should not exceed Better by more than 50%. Although customers’ perceived value must be the North Star, companies must also consider how many customers might opt for Good, Better, and Best and what the margins of each package will be. As a starting point—before conducting customer research—many companies estimate that 10% to 20% of revenue will come from Good, 25% to 50% from Better, and 30% to 60% from Best. The actual mix will depend on how many attributes vary between versions, the degree of differentiation achieved, and the price spread.

It’s never too early to think about names for the G-B-B options; those are essential in helping consumers quickly identify which version best meets their needs. Lisa Krassner, the chief member and visitor services officer at the Metropolitan Museum of Art, says that the very clear names of the three Members Count options, each delineating a particular benefit—With Early Views, With Evening Hours, and With Opening Nights—have been key to the offerings’ success.

Bringing in Research

Many companies conduct formal research to see whether their intuitive sense of what customers want is on target. The timing and scope will depend partly on organizational culture: Some data-driven companies do several rounds of testing, starting soon after the brainstorming step, while other companies wait until they’ve created tentative G-B-B bundles and prices. (Still others proceed without any formal research.) Regardless of timing, companies can draw on three sources of data:

Expert judgment.

Experienced executives, salespeople, and other frontline employees have a good understanding of customers and their needs. They’ve watched people balk at prices, and they often have a sense of when customers would pay more. When setting G-B-B prices, companies should collect and factor in the views of these in-house experts. Although that may feel unscientific, my experience with clients shows that in-house expert judgments often reliably predict data gathered during more-formal testing—and many companies design and implement effective G-B-B strategies using only those judgments to drive bundle and pricing decisions.

General market research.

Basic insights can be gained by asking customers to respond to potential features and prices in quantitative or qualitative surveys (the questions can be added to existing post-purchase satisfaction surveys). Simplicity is crucial: A survey item might say, “We’re excited to roll out this premium feature for $79. Would you be interested in making this purchase, and why or why not?” Modifying the questions to test customers’ interest in a discounted Good product instead can yield insights into fence attributes and the risk of cannibalization.

Conjoint analysis.

This common research technique involves giving subjects a series of binary product choices, each with different features and prices, and asking which they prefer. It can be a powerful tool: If the choices are constructed well and enough data is gathered, researchers can gain a clear sense of which attributes or features customers want, how much they will pay for each, and which are fence attributes. It isn’t foolproof: As with any market research, results can be flawed or biased, particularly by the composition of the customer sample that responds. Still, especially for companies desiring strong quantitative evidence before bringing a G-B-B strategy to market, positive results from a well-designed conjoint analysis can provide comfort and affirmation.

Once research has helped a company finalize feature and pricing decisions, it’s time to launch the G-B-B offerings. Early results should be watched carefully and adjustments made as needed. Compared with other product attributes, pricing is often easy to alter on the fly.

CONCLUSION

Most companies could implement some form of G-B-B. Every company already offers the equivalent of a Better offering, and even if some firms can’t implement both Good and Best, many could gain new customers, additional revenue, or both by adding either a Good or a Best to their lineup.

The companies with the biggest challenges in designing a full G-B-B lineup are those whose products have few distinct features and/or features that can’t easily be modified, making it hard to identify effective fence attributes and move down market with a Good bundle. In other cases, executives may be too fearful of cannibalization (or skeptical about the effectiveness of fences to limit it) to sign off on a Good offering. (Some B2B companies that decide against explicitly marketing a Good product may devise a compromise: quietly offering a Good version to budget-constrained clients on a case-by-case basis, with the goal of establishing new customers or saving existing ones and upselling them in the future.) Even if a Good option is not viable in any form, exploring a G-B-B strategy may prompt companies to introduce a Best offering, which can deliver new revenue.

As strategies go, shifting to G-B-B pricing may seem simplistic, but many companies have discovered that it’s more powerful than it appears at first blush. Jim Roth, a senior vice president at Dell EMC, was in a fast-food restaurant at Chicago’s O’Hare airport when he realized that the bundled value meals on the menu board made it easier for him to order. That caused him to reflect on his own company’s pricing and bundles. Dell EMC ultimately created Good, Better, and Best versions of its deployment support for B2B customers—and found that customers buying those bundles generally spent three times as much as they had previously spent on that type of after-purchase support. Dell EMC thus joined the many other firms who have recognized that G-B-B could help them serve their customers better—and boost their bottom line.

A version of this article appeared in the September–October 2018 issue (pp.106–115) of Harvard Business Review.

Rafi Mohammed is the founder of Culture of Profit, a consultancy that helps companies develop and improve their pricing strategies, and the author of The Art of Pricing: How to Find the Hidden Profits to Grow Your Business (Crown Business, 2005) and The 1% Windfall: How Successful Companies Use Price to Profit and Grow (HarperBusiness, 2010). Follow him on Twitter @cultureofprofit